| Abstract: | A direct and largely untested implication of hysteresis concerns the extent of market entering and leaving in response to large movements in exchange rates. This note examines, for 359 4-digit U.S. SIC industries, data on the distribution of U.S. exports by country of destination (a proxy for the number of markets served) from 1978 to 1987 and relates changes in these distributions to overall exchange rate movements. We seek to explain differences in the response across industries on the basis of differences in sunk costs. The empirical results are generally consistent with the hysteresis approach. While in periods of general dollar depreciation firms spread exports more widely across foreign markets, this effect is seen to be limited in industries with relatively large distribution and media advertising costs, for which much of the costs of establishing export networks may be sunk. |
